Seven Biggest Mistakes that Buyers Often Make
Once you’ve made the decision to buy your own home or to move to a different property, excitement kicks in and you want to start looking at all the home listings.
But wait, there’s preparation work to deal with first. Homebuyers often skip some or all of this planning effort. We identify the seven biggest mistakes that can cost you significantly before you even start to look for the home of your dreams.
Choosing the wrong location
Location, location, location – these really are the three most important considerations when buying a property. You can always repaint a wall colour or put in a granite countertop but your home stays put where it is. Even in the same area, two adjacent streets may have very different environments depending on, for example, traffic patterns or the closeness of a playground. Be sure to visit the location on both weekdays and weekends and at different times of the day and evening to gain a full picture of what living there will be like. And check into the ratings of neighbourhood schools as well. Even if you don’t have children, the people who you eventually sell your home to might. Your real estate agent’s knowledge of the neighbourhood is invaluable to advise you on this.
Selecting an inexperienced agent
Buying a house is a complicated, stressful and emotional process, and chances are you don’t have the knowledge, skills or contacts to do it. You need an experienced real estate agent who can guide and support you; someone you trust. Don’t feel obliged to hire your friend or cousin as your real estate agent through social obligations, unless they are top-rated agents. Remember that your agent’s fee comes out of the selling agent’s commission.
Not knowing your budget
You need to know how much you can comfortably afford to spend on your property – before you start looking and fall in love with a home way out of your price range. You can check our guide on how much money you need to buy a house in Canada for an idea of how much you’ll need. It’s not as simple as just 20% of your home price – there’s many nuances and pros and cons with different downpayment amounts. You can estimate your minimum downpayment and the effects of having a higher initial investment using Wowa’s mortgage down payment calculator.
The best way to figure out your budget limit is to check how mortgage you could potentially qualify for using Wowa’s affordability calculator. We combined algorithms from all the top Canadian banks, the CMHC, as well as our in-house model to create Canada’s most comprehensive mortgage affordability calculator.
Once you have an estimate, you can go get a mortgage pre-approval. You provide the lending institution with details of your income, your savings and any other financial commitments and they give you a letter stating the maximum mortgage amount you qualify for. This not only acts as your buying limit but it also gives confidence to any seller that your offer on their home is serious and will be backed by that financial institution.
Not looking for the best mortgage rate
Here are five reasons to spend time researching and negotiating for the best mortgage rate:
- Even a 0.1% drop in your mortgage rate could save you more than $400 each month on a $500,000 property. You can calculate how much you can save using a mortgage payment calculator.
- You’re not limited to banks for your mortgage; check out credit unions and brokerages as well.
- Lenders want to lend you money if you have a very good credit rating and a stable income; that is a good negotiating position to be in.
- You have a choice of institutions and if they know you are shopping around for a mortgage, they may be more willing to give you a lower mortgage interest rate.
- You don’t have to get your mortgage from the institution that pre-approved you if somewhere else will give you a lower rate.
Not looking for the best mortgage rate is known as one of the most common mistakes by the first time home buyers.
Not researching the closing costs
Closing costs are those out-of-pocket costs that need to be paid before you take possession of your new home. Some of the closing costs are quite obvious, such as the legal expenses, but you might not think of others such as the land transfer tax that can be quite significant. You can use Wowa’s closing cost calculator to find out more about and estimate your closing costs.
Underestimating the ongoing costs
First up are your mortgage payments, insurance and property taxes. You can use Wowa’s property tax estimator to figure out your potential property taxes based on the home’s location and selling price. You also have to consider the costs of maintaining your new home. If you are in a freehold condo you’ll have condo fees; if you have to manage your own property you’ll have regular maintenance, seasonal maintenance, planned renovations and unexpected surprises. Not to mention there are monthly power and utility costs, which cost you a pretty penny when you have to heat or cool your home.
Not knowing your 3-year plan
While you may not expect to live in your new home for the rest of your life, you should plan to be there for at least the next three to five years to minimize losing money when you sell. If you don’t, perhaps renting is a better option for you right now. Selling a house is costly, as you pay 5% to 6% of the selling price as a commission unless you negotiate a lower rate with your real estate agent. Even if you move on and keep your home to rent out, unless you live close by, you’ll have to pay for the services of a property manager to look after your property.
If you address these seven points, you’ll be on your way to your dream home and a great real estate experience. Have any tips yourself? Share them below!